Spotlight: Dave Ramsey
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Can you set up an emergency fund before embarking on debt-elimination, or is that something that must wait until you've paid off your credit cards, your home equity line of credit, your car loans, etc.?

Well, we kind of do both. We have what we call "baby-step one," and that is a starter emergency fund of $1,000 only. You don't pay anything on your debt until you get your $1,000 baby emergency fund set up. You can do that pretty quickly, and only then do you start working on your "debt snowball" on everything but the house.

Our clients, our listeners and our readers are doing that in an average of about 18 to 24 months; they're becoming debt free on everything but the house. And once you get to that stage, you then go back to that baby emergency fund and you raise it up to a fully funded emergency fund equivalent to three to six months of your normal expenses.

So, to answer your question, do you save money before or after you pay off your debts? The answer is "yes."

Now, when I first started teaching the stuff 15, 20 years ago, I was so bent on getting people out of debt that I avoided that emergency fund until folks were debt-free. But the problem was, in practicality, that people were falling off the wagon. Something would happen, like a $350 alternator would go out on their car, and then they'd go and put that expense on their credit card, and then they would lose hope that they were ever able to win.

So, from a practical standpoint, we had to come up with something that would cover little emergencies and so that's why we added the little emergency fund to the process.

OK, let's say that you are like most Americans. You have a mortgage, a home equity line of credit, a car loan and credit card debt. And let's say that you come into an unexpected windfall, like an inheritance, that'll cover your car loan and HELOC, but not the mortgage. Would you invest that money for retirement and keep paying off your debts as you've been doing? Or is it better to use that money to knock out the HELOC and car loan, and then "snowball" the credit cards and deal with the mortgage last?

You should apply that money to paying off your debts, then fully fund your emergency fund and then, if there's any money left over, you should invest it.

The problem is, if you do not change your bad habits, you're going to be back in debt. Remember, it's your habits that are causing you to be in debt, not the lack of money.

If a family is in debt and the decision has been made to move from debt to financial freedom, should everyone become involved in the process? What can children do? How can they be positively involved?

Well, I don't think they can be that positively involved in actually helping a parent get out off debt except for maybe just adopting the new attitude of the household. That means understanding that we're not in Congress and that means that if we don't have the money, we can't afford to buy it. So, if that's the new motto of the household, and if the kid can participate in that, willingly or unwillingly, then that's great.

If there is one message you would like to impart to Bankrate's readers, what would it be?

The most important thing for anybody to remember is that anybody can get out of the mess they're in.

The thing that helped get me out is that I discovered my problem: I saw him in the mirror one morning. And if I can get this idiot in the mirror to behave, he can be both skinny and rich.

It's all a behavior modification thing more than it is some kind of mathematical formula or something you'll find in a book about the secrets of the rich. It really all comes down to "I'm going to change my life and I'm going to do whatever it takes to make that happen. I'm going to work extra, I'm going to have a garage sale, I'm gonna put the dog on eBay and the cat on Craig's list ... I'm going to do whatever it takes." And when you reach that point, when you realize that you are your own problem and you are your own solution, anybody can get out of debt.